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Being terminated as a result of frustration of contract

Ed Canning Aug 12, 2008

Sometimes employees are terminated as a result of a “frustration of contract”. It is like a no fault termination. It usually happens when employees become ill and are off work for a very long period of time. It is not their fault that they are ill and neither is it the employer’s fault.

Employees who are subject to this kind of a termination will see their benefits coverage end. They will receive the minimum termination and severance pay required by the Employment Standards Act but they will not receive an award for reasonable notice over and above those minimums like a regular terminated employee.

Samantha worked for a financial institution for over 20 years when she became ill and went off work. She suffered from major depression and anxiety phobia. After eight months of receiving the company’s sick pay, she tried to return to work for a four-month period but was unsuccessful. She became sick again and collected another sick months of the company’s sick pay. After that ran out, she applied for and received long term disability benefits for the company’s insurer.

Disability insurers have the right to cut you off of your benefits if you don’t follow the medically recommended treatment program from your doctors. 22 months after Samantha started getting the disability insurance payments she was cut off for that reason. She did not return to work or contact her employer in any way in the next five months.

Importantly, she did not appeal the insurance company’s decision at that time either. Other than the return to work for four months, Samantha had been away from work now for three and a half years. The employer sent her a letter stating that she had not communicated with them since she had been cut off disability benefits and had not advised that she was able to return to work. They took the position that either she did not wish to return to work and had effectively resigned or that she believed that she was totally disabled. The letter said that in either case they were terminating the employment as a result of frustration of contract.

At its core, the employer was saying there appeared to be no prospect of her returning to work in the foreseeable future and they were ending the relationship. They continued her benefits for the minimum period required by the Employment Standards Act and paid her out her minimum termination and severance pay.

Samantha took the position that the employer owed her more than just the minimum payments because the contract was not frustrated.

The problem was that by the time this matter reached the courtroom Samantha had sued the disability insurer and claimed that they should have kept paying her because she was still totally disabled. In her statement of claim against the employer, she also noted that she was still disabled. When the matter heard by a judge in the fall of 2011, Samantha was still disabled and had been unable to work for almost six years.

Of course, what was relevant were the facts on the ground when the termination letter was sent after three and a half years of illness. But judges are people too and the fact that the judge knew that Samantha was still unable to work six years later could not have been ignored. Even at the three and a half year mark, it was clear that there was no prospect of her returning to work in a reasonable amount of time. Samantha lost her lawsuit.

Whether you work for an employer for four months or 20 years, an employer is not an insurance company or a social service agency. They don’t have an obligation to keep the benefits going forever or to hold your job open indefinitely. At about the two and a half year mark of illness, most employers will take steps to determine if there is any prospect of you returning to work. If not, they will terminate the relationship. It is a real hardship for ill employees to lose their benefits coverage and a job to return to but it is also hard for most employers to keep a job open forever and to pay for benefits indefinitely.